A FUNNY THING HAPPENED ON THE WAY TO THE BANK THIS MORNING

A FUNNY THING HAPPENED ON THE WAY TO THE BANK THIS MORNING

A few years ago my partner and I were providing counsel to a fairly successful US citizen with relatively substantial foreign operations. During our conversations he informed us that each month he was wiring various amounts, in the low to mid five figure range, to his offshore entities. The money was being used to support their operations and acquire additional offshore investments. As we assist many US individuals and companies engaged in cross border transactions, including structuring and tax reporting, this situation is squarely in our wheelhouse so we inquired as to his corporate structure and his tax compliance. He assured us that that he knew what he was doing and had taken care of everything himself.

Well, for my partner this was merely and invitation for him to find all of the faults in the client’s planning, so he asked him, “Are you reporting the transfers?” As you may guess the answer was—“No and why should I?” Our client said nothing need be reported because the company was actually held in his wife’s brother’s name (also known as a nominee or straw man for those residing in the state of denial). He felt he was good. Ah, it must be comforting living in the state of denial, sunny all the time and it never rains on your parade; that is until you get that tap on the shoulder from the all mighty IRS.
Even after we informed the client about his various compliance failures, he responded, “How will the IRS find out?” My partner’s response “YOU WIRE THE MONEY OUT OF YOUR BANK ACCOUNT!!!” This particular client decided he didn’t want to spend the money to comply and chose to bury his head in the sand. Needless to say, he didn’t continue to be our client.

I am sure that many people with accounts at Belize Bank International Limited or Belize Bank Limited (collectively Belize Bank) were of the same opinion as our client–that is until September 17, 2015. On this date, Florida District Court issued an order allowing the IRS to issue a “John Doe” subpoena on Bank of America, N.A. and Citibank, N.A. requesting information as to Belize Bank holdings and correspondent accounts at both institutions. Most foreign banks without a US presence that deal in US dollars require that clients located in the US maintain “correspondent accounts” at US based banks. These accounts allow the foreign bank to reach US customers. These accounts are merely custodial in nature and the offshore bank uses the accounts as conduits for the clients. These John Doe summons can let the IRS obtain records of money deposited, paid out through checks, and moved through the correspondent account through wire transfers.

So in essence, the IRS is currently working their way down, or maybe up depending on your view, the food chain. They are now not only forcing foreign banks to disclose the identity of US account holders, but are forcing our own banks to tell them whenever an American makes a deposit from a US account to a foreign bank! (So much for those Forex accounts you though were safe). It seems our government will be making us prove our innocence rather than the government having to prove our guilt?

In any event, this is just another example of our government extending their reach into your financial affairs. What does all this mean? Well, for those of you who have money abroad, even in strawmen or nominee accounts, rest assured Big Brother is coming for you. As we have said repeatedly, it is not a matter of if he will find you, it is only a matter of when. Unless you look good in orange, or really want to spend some quality time in Club Fed, it is time to jump head first into an Offshore Voluntary Disclosure filing–before all of your money, and possibly freedom, is taken away.